European Stocks Retreat Amid Turmoil in Spain, Italy

Feb. 4 (Bloomberg) -- European stocks tumbled the most in
more than three months as Spanish and Italian banks retreated
with the nations’ government bonds amid signs of returning
political uncertainty in the region’s weakest economies.

Banco Santander SA, Spain’s largest bank, sank the most in
six months as Prime Minister Mariano Rajoy denied corruption
allegations. UniCredit SpA, the biggest lender in Italy, posted
the largest drop since June as former premier Silvio Berlusconi
gained in opinion polls before elections this month. Julius Baer
Group Ltd. fell 3.1 percent after the wealth manager reported
declining revenue margins.

The Stoxx Europe 600 Index retreated 1.5 percent to 283.9
at the close of trading, the largest decline since Oct. 23. The
gauge has still increased 1.5 percent this year as U.S.
lawmakers agreed to a compromise budget to prevent automatic
spending cuts and tax increases that threatened to push the
world’s largest economy into a recession.

“Spanish yields have blown up in the past hour to their
highest levels since December as concerns about the Spanish
government mount,” said Ioan Smith, a strategist at Knight
Capital Europe Ltd. in London. “In addition to the growing
corruption scandal in Spanish politics, the Italian elections
towards the end of the month are also a concern.”

The volume of shares changing hands in Stoxx 600 companies
was 16 percent greater than the 30-day average, according to
data compiled by Bloomberg. The gauge is trading at 12.2 times
its companies’ estimated earnings, compared with a valuation of
9.75 times profit in June, data shows.

VStoxx Jumps

The VStoxx Index, a measure of the price of using options
to protect against declines in the Euro Stoxx 50 Index, surged
26 percent for the biggest jump since August 2011.

Stocks in the world’s developed nations had posted the best
start to a year in two decades, as investors pumped record
deposits into mutual funds, U.S. profits increased for an 11th
quarter and central banks kept interest rates at record lows.
The MSCI World Index of equities in 24 developed markets rose 5
percent in January, the most since 1994.

“We’ve had this fantastic surge on a general warm feeling
that markets, and banks in particular, were past the worst,”
James Ferguson, chief strategist at Westhouse Securities Ltd. in
London, told Guy Johnson on Bloomberg Television today. “Now we
are beginning to question that at much higher levels, which
makes us vulnerable to a downturn.”

Benchmark Indexes

National benchmark indexes declined in all of the 18
western European markets, except Greece and Denmark. Italy’s
FTSE MIB Index sank 4.5 percent, the most in six months. Spain’s
IBEX 35 slid 3.8 percent for a sixth day of declines, the
longest losing streak in 10 months. France’s CAC 40 plunged 3
percent for the biggest drop since April. The U.K.’s FTSE 100
dropped 1.6 percent and Germany’s DAX lost 2.5 percent.

Newspaper El Pais last week published allegations of
illegal cash payments, featuring extracts from handwritten
ledgers by the former People’s Party Treasurer Luis Barcenas
showing payments to officials including Rajoy. The premier, who
is facing opposition calls to resign, visits Berlin today before
a European Union summit begins on Thursday.

Berlusconi Pledges

The yield on 10-year Italian debt increased 14 basis points
to 4.47 percent. Berlusconi yesterday promised to abolish a
property tax valued at about 4 billion euros ($5.4 billion) if
elected in the Feb. 24-25 ballot, in an effort to roll back
austerity implemented by Prime Minister Mario Monti.

Baer fell 1.17 Swiss francs to 36.39 francs, paring the
rally so far this year to 13 percent. Gross margin, or revenue
generated from the bank’s 189 billion francs ($208 billion) of
assets, fell to 94 basis points in the second half of last year
from 104 basis points a year earlier as clients traded less.

Royal Imtech NV plunged 48 percent to 10.20 euros, the
largest drop since at least 1989. The Dutch provider of
infrastructure for stadiums said it may have to book writedowns
of at least 100 million euros because of alleged irregularities
at its Polish business.

Swatch Gains

Swatch Group AG added 5 percent to 543.50 francs, its
highest price since at least 1993, after the biggest maker of
Swiss watches reported a 26 percent increase in 2012 net income
to 1.6 billion francs. That beat the average analyst estimate of
1.49 billion francs in a Bloomberg survey as the company
produced more watches and took advantage of expanded production
capacity at its factories.

Randgold Resources Ltd. advanced 3.1 percent to 6,275 pence
as the producer of the precious metal in West Africa raised its
dividend. The company increased the payout by 25 percent to 50
cents a share and forecast 2013 gold production of 900,000 to
950,000 ounces, topping the 842,000-ounce estimate from analysts
at Bank of America Corp.